Morning Thoughts – Oldinvestor

The bottom is in… I still feel like I’m on a limb by saying this, but most signs point to this being the case. There’s a lot could ruin the bull run here; like production ramping up, really un-supportive weather, LNG crashing again.

I believe prompt pricing has some room to move. Sept coming up from lows just below $1.60. It would appear $2 should be what I would call the “magnet price”. The big news is LNG. LNG demand has risen above 4Bcf/d, and we all know about where it is targeting or will reach at some point soon enough. The market knows this as well, which is why there has been stair stepping move upward over the last 2 months, after lows were reached.

Comparison of NGU20/BOIL/KOLD from 6/8/20 to 8/3/20

Something that has been on my mind some, especially since I’m trading it, is being short KOLD vs being long BOIL. The arrows in the photo are close to where BOIL and KOLD will open today. I’m pointing this out because in just 2 months, the natural decay has whittled their pricing down by 10%. These ETFs have followed NGU20 since some time shortly after 6/8/20, the point of where I’m starting my comparison of the three charts. So it is not roll decay that is dragging down the price; it is raw decay and volatility. Granted, going short on KOLD, if I sold 100 shares at say $60/share, and the price went as high as $85/share, I needed to have enough money in my account to cover my butt when KOLD goes against me. Since I have survived, I am all but guaranteed to make money on the trade. I think I’ve driven this home enough.

So with LNG getting back on track, and production not (yet) ramping back up, pricing is just too low. That’s not to say prompt is going to $3, and winter is already at $3. I feel this leaves a relatively small amount of room for long sided trades. With this last move in natgas, I feel better about the idea of trading UNG again. I’m not willing to buy here, but I’m willing to consider it on a dip. I’m still holding 60% of funds in UNL and will continue to hold this, maybe through winter. UNL is certainly worth the patience for survival.

NGU20/BOIL/KOLD/UNL/UNG from 6/8/20 to 8/3/20

The green line is UNL and the pink is UNG. I don’t think I need to preach anything about this. I’ve been better to be 80% in UNL these last couple months than to be in UNG. Granted layering in UNG can offset a lot of decay, and will soon be the case again.

My positions

UNL – 60% of funds in from $7.4 – boring

BOIL and KOLD – covered puts

BOIL/KOLD covered puts as of close 8/3/20

Today is going to be pretty sweet again. I will not be covering any UNL or trading any UNG. I may make changes to one or both of my KOLD puts, stay tuned for that. These don’t require changes, and the 70 put probably just needs to expire and I cover the entire trade with a small gain. I’ll post anything closer to market open if I decide to do anything with my 55 strike put. BOIL is just there riding the wave; it will remain boring for… until it’s not I guess. Good Luck

Oldinvestor

Morning Thoughts – Oldinvestor

BOIL and KOLD covered puts as of close 7/30/20
Profit/Loss of BOIL and KOLD covered puts as of 7/30/20

I don’t have much to comment on today. I’m waiting to see if the market will pull back some here. As a reminder I did reduce UNL by 20%, now putting me 60% in UNL.

Weather is showing weakness in the forecast for once. LNG still seems to be on its way. Production is in question, but has the ability to increase. My hope is to see one more dip before winter influence and a decent LNG recovery. If there is another dip, I’ll do my to be patient and try to get in UNL below $7.5. Maybe even go all-in. I do think the market could move sideways or even go up. I don’t really know what to expect with LNG. We know that LNG exports will increase, but will production increase to meet the need? Will export facilities start ramping up demand early to fill their tanks? The timing is very unknown to me. I just know I want to be on the long side of this and leave room to add if there is a dip. I’ll be content if I don’t get any more UNL and it somehow goes up from here. For now I’ll be patient. Good Luck

Oldinvestor

Morning Thoughts – Oldinvestor

Yesterday was a blast. The market ran up and I held on. However, I’m ready to reduce my UNL holdings. I do think the market has shifted in mentality, but only so much can be sustained.

I would think that if the market is able to compete with the 5 year average in regards to storage builds, that U and V contracts would start to get pulled above $2 mark. Even with current storage at 3215Bcf or 436Bcf higher than the 5 year average, LNG increases will start to catch current storage up to the 5 yr. Granted it will take some time to destroy a surplus of 436Bcf. Josh Heller is good a pointing out to me an example like it would take 200 days at 2.18Bcf/d of better than average demand to catch the 5 year average. That would be around the beginning of March.

So can LNG or another demand category increase more than supply well enough to draw and extra 2bcf/d or more over the 5 year average for the next 200 days? That would be like assuming LNG exports will get a boost and production will just sit tight and not increase through winter. I am highly cautious here. The LNG picture globally hasn’t improved that well yet, but could slowly. You’ve also got a lot of LNG production looking for a home. I’m pretty scatter brained right now. My thoughts are hard to keep straight right now.

Here it is:

1.) LNG is improving slightly, but can only improve so much as the LNG market was already headed into trouble with an oversupply situation before the pandemic hit. Everyone already knew this, and that has not changed. It will improve in the near term, but by how much and for how long I don’t know. Does anyone know?

2.) Production is down, but has the power to bring wells back online with a little work and production could be restored to match increases in LNG to a point. I don’t know how much production could pull out of the hat by say next month, just by turning the faucet back on… I do know that production couldn’t out perform LNG if exports where to go back to 8Bcf/d. So LNG is still the leading factor.

3.) Prices are spread out like crazy, the market is already pricing winter closer to $3 and until storage is proven to be swallowed up by demand outpacing supply, $4 is out of the question. Unless you want to bet on a blizzard of a cold winter, in that case you may as well head down to the casino.

There. That was better. I think I’m positioned just right for myself for the potentials that could be derived from my previous 3 points here. Prices could spur soon (as soon as LNG picks up). But prices will be limited and winter pricing is already substantially higher than prompt pricing.

My positions

UNL – 80% in with an average of $7.4 I’m going to reduce by 20% now at $7.98

Covered puts as of 7/29/20

I’ve considered rolling out my 55 strike put on KOLD to 9/18/20 expiration. I’ll have to think on this some more. For now I’ll just reduce UNL to 60% holdings. Good luck

Oldinvestor

Morning Thoughts – Oldinvestor

I think V/X is the play of the year here. NGV20/NGX20 spread is 45c apart. IF…. If LNG is really set to recover by September, then why wouldn’t V/X close the gap? October contract expires on 9/28/20, which is week 40, and this is in the middle of a time when South Central storage will build strongly on average. So this seems to be the point where the market is the most nervous.

I have said before and stick with this; storage will not reach max capacity, but it is the threat of getting too close that drives prices down. I am slowly backing away from the idea that South Central storage is going to cause major bearish problems with natgas pricing. Searching ‘LNG cancellations” still doesn’t show me any new news in google. That doesn’t mean anything except that I haven’t heard anything new. I still plan to keep my positions unchanged, with one exception. I decided to add another KOLD covered put to my account.

As for fundamentals…. Production is

Production as of 7/28/20 by HFIR latest free article

Production is moving more sideways. I believe some producers are waiting a until LNG news really helps out pricing to bring some production back online. Production is still down 4bcf/d from a point that would arguably be where natgas production might be if the pandemic were never brought into the picture. LNG was still headed down a dark path pre-wuhflu, but it is also arguably down more than 4bcf/d from where I would put it without the pandemic.

Now, obviously is more about who is going to bring what back online and when will be the key. I’m going to say producers could bring up to 4bcf/d of natgas back online, but it is unknown to me as to who and when. We know LNG is good for nearly 6bcf/d in additional capacity from the current 3bcf/d of exports. At this point, I expect an increase of roughly 3-4bcf/d of demand increase from LNG exports, putting total LNG demand at 6-7bcf/d.

Weekly Inventory Change vs 5yr avearge weekly change at RonHenergy.com

Storage seems to be hanging in there based on EIA inventory reports vs their 5 yr average baseline. For example last week was a build of 37Bcf and the average is 37, so this would indicate a fairly tight market with the current heat in the US. So this all leads back to that IF at the top of the page. If LNG increases by 3-4bcf/d and production either chooses not to or cannot increase by this same amount, then pricing lean bullish from here. As for V/X, I’m still not a spread guy and may never be. I’ll stay closer to what I know for now.

UNL – 80% in with an average of $7.4

BOIL – 1 covered put

KOLD – holding my 55 strike covered put and added 70 covered put yesterday.

Covered put positions as of 7/28/20
P/L as of 7/28/20 on covered put positions

So I chose to take on another KOLD covered put. I sold a 70 strike put this time so I can cover it in the event that NG prices do fall one more time and sends KOLD into an area where I’ve not been able to short shares. I’m shorting it now, protecting my short shares with the put and can exit the put any time and just be short KOLD shares with the profits from the put rolled into the share position, essentially giving me a short from that point forward. Same as the BOIL trade. I really like this trade because I will make $300 in the next 4 weeks even if the NG prices don’t fall. And even if they do fall and KOLD goes to 70, I still make $300 and get to cover the put and short KOLD directly from that point forward. This is by far my favorite plan from this point. I could have done this a few times in the last couple months; so I’ve missed out, but I’m learning and I have a new trade that I really like for the right moment. And $300 against $4000 in margin is a sweet 7.5% gain in 24 days.

As for the rest of my positions, I’m waiting on time and for something to happen. Good Luck

Oldinvestor

Morning Thoughts – Oldinvestor

Not much change in what I know. It would appear this week is going to be a slow downward trend, maybe it will be disrupted Thursday with EIA report.

BOIL and KOLD covered puts as of close 7/27/20

I’m still holding the same positions.

UNL – 80% in and waiting

BOIL and KOLD 1 covered put each, and WordPress or the server is being a pain and I don’t have time for this. I would just be preaching patience today anyway. Good Luck

Oldinvestor

Morning Thoughts – Oldinvestor

Production is back. The disruption from an unplanned maintenance event a couple weeks ago has recovered and production is trending up again. I think it’s hard to say where production will level out.

Production levels as of 7/24/20 from HFIR free article

The above photo is linked to the article it comes from that was posted last Friday. The article focuses on demand and the inability it will have to fill storage to max capacity. It should also mention something of production since these charts were shared.

Either way, production is recovering. A quick search for LNG cancellations only brings up news that is 5 days old, so I’ve essentially got nothing. Production is potentially rising and hopefully LNG is as well. Storage builds have been bullish, and weather has actually been helpful in the south central region. But South Central generally has draws on storage this time of year.

Weekly South Central Inventory 2020 vs 5 year average at RonHenergy.com

I’m still keeping this in my back pocket. A 3Bcf/d curb in LNG cancellations are almost necessary at this point. I will remain 80% in UNL for this reason. However, if storage for South Central begins to flirt with maximum capacity, the opportunity could be huge once the risk subsides. For now I’ll hang on to what I’ve got.

My positions

UNL – 80% of my max comfort invested and waiting still.

BOIL and KOLD covered puts are back to the original state

BOIL and KOLD covered puts
BOIL and KOLD P/L

So I re-entered my KOLD short put to make KOLD a covered put again. I added the $2 in premium to “sum of roll premium”, and my profit is booming now. This is exceptional for a trade that cost less that $10,000. More than 10% in a couple months. A large portion of the profits have come from a good choice in direction of NG, but that can’t be avoided. Fundamentals and a good sense of market direction is still required to make it; even with options. This one particular options trade has certainly helped turn a scary directional trade into one with a little more stability. Since I believe the market is still weak, I”m going to keep my covered put in KOLD like it is for a while now. If the market decides to rocket up, I’ll make money, and if it falls, I’ll be better protected. Good Luck

Oldinvestor

Morning Thoughts – Oldinvestor

Well If it isn’t South Central storage getting some temporary relief, then it’s LNG showing some recovery. Probably a little of both and some other factors I’ll never know about. I really believe $2 for prompt NG pricing is not out of the question next week. A lot can happen over the weekend to ensure that or squash it. I can choose to stay short just on shares of KOLD or I can choose to sell another put against my shares.

BOIL and KOLD positions as of close 7/23/20
My redneck spreadsheet of current BOIL and KOLD positions (P/L included previous premium scraped)

So KOLD is killing it for me now. I exited the put when it was nearly a $700 gain. At that time my short share position was negative $1100 with KOLD at $72. Since I exited the short put, I collect that profit and the shares recover to near break even, and i have some profit from the previous put I sold and scraped near $200. I’m leaving the put on my spreadsheet, but the numbers should be accurate since I did exit the put at $2.6, which is what I’m showing above. I can’t put 0 in that cell because it would count $260 more profit that I didn’t get from that trade. Now…. I can re-enter the put and ride down to $55 and still make whatever amount is still left in premium on the put.

Let me ‘put’ it this way… If I stay out of the put, my account balance will vary based on my shorted shares. If I re-enter the 55 strike put, I can collect say $4, more in premium down to $55/share on the KOLD shares. Why would a sell a put now?

Price projection sheet

If I believe that NGU20 can get to $2, then I should wait, I could actually make more in a shorter time frame than I expected. Now if I think prices are going to continue to be weak, I might go ahead and sell the 55 strike put again to collect more premium on that trade. If I can sell it for $4.6, then I’ll have collected $200 from where I bought it back (at $2.6) and where I’d be selling it again (at $4.6). I’d also collect the $4.6 in premium as long as the share value stays above $55 by expiration, and even if it doesn’t, I’ve increased my max gain from $1766 to $1966 if KOLD shares drop below.

I’m not sure why I’m explaining this so poorly, well I do… I mean I don’t know why I’m bothering to explain it at all. If you don’t know options, then I’m doing a piss poor job of explaining; and if you do know options, you don’t need me to explain…. ahh geez.

So I’m still holding 80% of my funds in UNL and waiting for gas to make that big comeback. or at least get close to $8. I’m showing the KOLD and BOIL trades, because I’m bored with waiting on UNL, and I would expect anyone reading this would be bored as well. BOIL was intended to wait until December, so it’s a pretty boring trade as well. As for KOLD, if I can sell the 55 strike put for $4.6, I’ll be happy with that. I’ll have scraped $200 in a few days and will continue with my best trade in a while (the KOLD covered put). $4.6 may be reaching for that put, but that’s the order I’m going to start with and will adjust it some to get back in.

I want to be in a protected trade, not just short on KOLD shares. I’m ok with being directly short 100 shares of KOLD. I just prefer to go with a more protective trade, which was my reason for selling covered puts from the beginning. I know I’m doing following the standard for selling covered puts/calls, but I’m learning more about how I want to approach this, and I’m certainly happy with this KOLD trade. If it weren’t for the decay and hard to barrow deal with ETFs, then I might not do the covered put trade. Sorry about another messy post today.

Basically there was a large move in favor of the longs, time to secure a little of those profits. Good Luck

Oldinvestor

Morning Thoughts – Oldinvestor

BOIL and KOLD positions as of close 7/22/20

I don’t have time to talk about the market. I re-shorted 10 more shares of BOIL bringing this position a full covered put again and margin is back down to roughly $6000. KOLD is moving back down some to improve that position as well. Being that I’ve been selling puts closer to expiration, making changes like covering the put, I think are common. I like actively managing a trade, but I like the idea of making enough money to retire early more, so I’ll also leave alone the BOIL trade and let it play out to December to see what happens with that.

UNL – still 80% of funds invested and waiting.

I have not opinions on what happens today. The market does seem a bit more optimistic this week, I will give KOLD some room before I try and re-enter another short put. Good Luck

Oldinvestor

Morning Thoughts – Oldinvestor

KOLD and BOIL covered puts altered as of 7/21/20

The fundamental story is still the same. Waiting for LNG to get it together. Weather is helping, but it won’t be enough this year to keep prices propped up. Production creeping back in…

I’ve got a short amount of time to share my positioning with BOIL and KOLD. As for UNL, I”m still holding 80% long and waiting for something crazy to happen.

BOIL and KOLD covered puts as of 7/20/20
P/L as of 7/20/20

So I cleaned things up a bit; as good as I can do in 10 minutes. As of Monday at market close, I was behind roughly $178 loss. I’ve shown it swing to a profit a couple times, and $178 is not much of a loss.. Also Margin was less than $10,000 as of Monday.

So yesterday I bought back 10 shares of BOIL and I bought back the KOLD put. I don’t have a good way to reflect the 10 shares of BOIL covered in my spreadsheet, but it’s not so important. I’ve only saved myself $0.50 as of close Tuesday vs Monday. So the market bounced back just a bit, here is my current estimated Profit/Loss as of close Tuesday, you can add 50cents to this if you wish.

P/L as of 7/21/20

OK, here is the point. I”m going to make things even more hairy here.

profit/loss on 7/17/20
Projected profit/loss today if prices get back to what they were 7/17/20

OK… so if prices move back to what they were on 7/17/20, i would save myself about $23 by covering the 10 shares of BOIL, and $210 by covering the KOLD put (assuming the put premium value would go back to $4.7).

Something that isn’t worth it, Margin requirements for BOIL are now over $10,000 just for that 10 share adjustment. barf… KOLD margin requirements improved just a bit, but not enough to be a decision changing factor in my account.

Morale of the story here… I don’t know. Don’t cover 10 shares of a covered put. It isn’t going to make up for the headache in Margin. That BOIL trade was always intended to be a long term trade anyway, I’ll re-short the 10 shares today to get margin back down. But the KOLD position change has nice potential on a direction change in NG pricing. Granted, it may not happen this week. I think the adjustment in KOLD was a valuable one and I will hang with that for a week or so. If NG prices will spur a bit on any positive LNG sentiment, I’ll re-enter the KOLD put and stay the original path. Ok, it’s time to get to work. Hope this wasn’t too mixed up. Good Luck

Oldinvestor

Morning Thoughts – Oldinvestor

So I don’t have access to long term region production. I’m not sure of a source for that, but there is certainly a return to production. I’m guessing Permian is at the head of this list. If this is true, my theory about South Central storage is still a hazard. Permian sends a lot of gas in that direction; if it’s not getting used up by power burn and exports, it’s going into storage. No one else needs it right now.

Here we go, 10 mins ago

https://www.reuters.com/article/us-united-states-lng-exports/buyers-of-u-s-lng-keep-cancelling-cargoes-for-sept-sources-idUSKCN24M1AO

September cancellations. Check it out. Around 25 cancellations thus far; this is far better than 40-50. So if this number for September doesn’t grow, this could be a great sign for the LNG market. Prices could rebound quickly to $3, however Dec/Jan/Feb are already close to $3 for this reason. I’m certain I’m said this before, that South Central won’t reach max capacity, but it’s the looming threat. So timing is still important for LNG to get back online to prevent a potential freak out. This being said, I’ll wait until there is more confidence that LNG exports are on the recovery before switching back to UNG. I am interested in buying at this price, but would like to see if today tests new lows. Maybe I’ll get in with my last 20% of funds if today doesn’t see new lows.

My positions

UNL – 80% of my max comfort in with an average of $7.4 – waiting for $8 to even consider reducing

BOIL and KOLD covered puts.

as of close 7/20/20

As you can see, my KOLD position is feeling some pain. But it’s really not so bad if I count my previous premium collected.

overall KOLD covered call position

Some of this screen clip might not make sense, but I’m showing that with my previous premium collected, I can break even at $72.66 at expiration. I’m only $237 behind at this point with the put premium at $2.4. I’m thrilled with this. I could let the put expire and then just wait for a big move in KOLD and collect profits from $72 back down just on the change in share value. I could also cover my shares position in BOIL and keep my 90 strike put to move back the other direction as well right now. NO need to jump the gun, I’ll be watching this closely. My margin requirements will increase if I cover part of a trade on either of those scenarios. I don’t need to get in a bind from that. Best to wait until I think the market is trending in my favor. So far I’m waiting a bit longer; seems that’s all I do these days. It’s always a good time not to get in a rush to lose. Good Luck

Oldinvestor

As an important side note, I will be slowing down on my posts. I have a lot of life going on right now and I may have to change how I post or stop entirely. Time will tell and I will always be on Twitter for any question that anyone may have, no matter what happens in my work and personal time lines.